Audits Ed Falkowitz

1. Audits Ed Falkowitz Train-the-Trainer Workshop September 27-29, 2004 Schools & Libraries Division

2. Why Me? • Random Audits • Selected Audits • Why the auditor is your friend

3. Who does audits? • USAC Internal Audit • USAC External Auditors • FCC/OIG • Other Federal OIGs

4. Compliance Classification • Compliant • No program rule violations • Generally Compliant • Limited violations • Not Compliant • Significant violations

5. Types of Issues • Finding • An internal control or other observation that is not a program rule violation. • Exception • A program rule violation.

6. Round 3 Overview • 79 audits • Representing a total of over $379.4 million committed and over $312.4 million disbursed • 20 auditees classified as Not Compliant (25%) • Auditor observations • Rule violations – 55 • Finding only – 173 • Issues cleared – 49 • Amount requiring recovery - $9.0 million (One beneficiary accounts for $6.5 million.)

7. 5th Order Documentation Requirements • The order requires program participants to retain all documents necessary to demonstrate compliance with the statute and Commission rules regarding the application for, receipt, and delivery of services receiving schools and libraries discounts. The descriptive list in the order is a guideline, but cannot be considered exhaustive. • Documentation must be retained for 5 years after the last date services are delivered.

8. How To Prepare For An AuditWhat To Have Available - Bidding • Overview of the selection process including criteria and weighting of the criteria • RFPs issued • Copies of all bids received (winning and losing) • Contracts for supported services • Copy of procurement policy and procedure • Bid evaluation documentation including evaluation worksheets • List of all vendors supplying E-rate services including contact information • If applicable, copies of state and local procurement regulations and procedures • Any available documentation that indicates that all bids were considered

9. How To Prepare For An AuditWhat To Have Available - Invoicing • Detailed procedure for validating and processing vendor bills and submitting invoices to SLD (if applicable) • Documentation verifying date of receipt of equipment • Copies of invoices (BEAR Forms) for supported services • Reconciliation by FRN of vendor bills to invoices submitted to SLD • Documentation of any SPIN change request including copy of notice to original service provider • Documentation of payment (canceled checks) of payment for E-rate services to vendors • Documentation or receipt and deposit of any amounts received for BEAR invoices

10. How To Prepare For An AuditWhat To Have Available - CIPA • Copy of the Internet safety policy • Documentation of the adoption of the Internet safety policy • The date and a copy of the minutes of the public hearing regarding the Internet safety policy • Copies of Forms 479 and/or Forms 486, if applicable

11. How To Prepare For An AuditWhat To Have Available - Services • Copy of the technology plan(s) and approval letter(s) covering the complete year under review • Summary of the technology environment and a high-level network diagram • Any other documentation on the services (such as training and workstations) necessary to make effective use of E-rate discounts • List of E-rate equipment including references to vendor invoice, SLD invoice, serial number, and current physical location

12. How To Prepare For An AuditWhat To Have Available - Other • OMB A-133 audit, if applicable • Reports of any other audits conducted that relate to either E-rate program or the NSLP. • Copies of financial statements and annual budgets • Documentation and supporting worksheets for the discount calculation • Copy of the records retention policy • Description of the E-rate team including, staff, vendors, and consultants. This should contain their roles and responsibilities. • Any correspondence from or to USAC, the FCC, potential E-rate vendors, or any E-rate team member • For consortia, letters of agency

13. How To Prepare For An Audit –Who Should Be Available • Person who managed the bidding and award process • Person who reviews and approves invoices • Person who prepares E-rate invoices • Person who writes checks, makes deposits, and reconciles the bank account • Person knowledgeable about the network and the location of equipment.

14. Round 3 Exceptions - Bidding • Copies of contract not available • 28 day waiting period not observed • No evidence of competitive bidding or compliance

15. How to Avoid Audit Issues - Bidding • Retain copies of RFPs, all bids received (both winning and losing), and all contracts. • Maintain documentation of compliance with state and local procurement regulations, including advertising and bonding. • Maintain documentation of the process and any related analyses leading to the selection of the winning bid. • Sign contracts ONLY after the 28-day posting requirement. • A service provider is permitted to supply general advice to an applicant in preparing Form 470, BUT CANNOT SIGN OR PREPARE THE FORM 470. Maintain documentation indicating the details of the advice supplied in order to protect both the applicant and service provider from any appearance of impropriety.

16. Round 3 Exceptions - Invoicing • Insufficient detail on invoice or invoice does not support request. • Invoice not available. • BEAR payments were not remitted to the applicant. • BEAR invoice submitted with no prior payment to the vendor. • The non-discount portion of services was not paid by the applicant or was paid late. • Services not provided within funding year.

17. How to Avoid Audit Issues - Invoicing • Customer bills should have been received for any BEAR invoice (Form 472) submitted to SLD. • Submit invoices to SLD only after services have been delivered and — for BEAR Forms — the applicant’s payment has been remitted to the service provider. • The submitter of an invoice should maintain an analysis relating the SLD invoice (BEAR Form or SPI Form) to the invoice numbers of the customer bill. • Maintain copies of customer bills and invoices submitted to SLD to facilitate any requested reconciliation. • Maintain documentation of compliance with Copan certifications for SPIN changes.

18. How to Avoid Audit Issues - Invoicing (cont.) • If 45 days have passed since the receipt of the BEAR Notification Letter without receipt of payment from the service provider, contact the service provider and request payment. If payment is not forthcoming, contact the SLD invoice hotline at 1-973-428-7335 to request assistance. • Establish controls to track specific payments of the non-discount portion of services provided to invoices submitted to SLD.

19. How to Avoid Audit Issues - Invoicing (cont.) • Include only services provided within the funding year on invoices submitted to SLD. • Submit requests for extensions for service delivery or invoicing on a timely basis. Always verify extensions by referring to the status on the “FRN Extension Table” available on the SLD web site. • Refund the appropriate portion of disbursements made by SLD for equipment that is returned.

20. Round 3 Exceptions - Services • Inadequate documentation • Ineligible services • Could not locate equipment • Not used for eligible or educational purposes • Services not provided • Unable to make effective use of E-rate discounts

21. How to Avoid Audit Issues - Services • Maintain an inventory of E-rate equipment that includes make, model, serial number, physical location, date installed, FRN, customer bill reference number(s), pre-discount cost, non-discount portion, and reference number (e.g., check number) of the payment of the non-discount portion • Test the network on a periodic basis to confirm that it is functioning and maintain documentation of the results.

22. How to Avoid Audit Issues – Services (cont.) • Be sure that services are not requested or ultimately used for ineligible purposes, i.e., other than education purposes. • NOTE: Form 471 requires applicants to certify that they have secured access to the resources necessary to make effective use of E-rate discounts. This means the ability to pay the non-discount share and to acquire any other equipment or services necessary to make use of connectivity, including those services not supported by E-rate discounts, such as workstations and telephone handsets.

23. How to Avoid Audit Issues - Services (cont.) • Document the delivery and installation of equipment using a completion certificate. Maintain completion certificates in a permanent file. • Submit service substitution requests on a timely basis and maintain copies of requests and approvals.

24. Round 3 Exceptions –Technology Plan • Insufficient budget • Technology Plan approval letter not available • The goals and objectives in the Technology Plan are not monitored • Plan missing some of the five criteria

25. How to Avoid Audit Issues - Technology Plan • Retain a copy of the budget. • Retain a copy of the technology plan approval letter. Make sure the approved plan covers the complete funding year and includes the 5 criteria. • The technology plan requires an evaluation process to monitor progress toward the specified goals and objectives. Retain documentation that the monitoring process has been implemented as defined in the approved technology plan.

26. Round 3 Exceptions – Entities • Ineligible Entities

27. How to Avoid Audit Issues - Entities • The definition of a school is governed by state law. Juvenile justice, adult education, and/or pre-kindergarten students and/or facilities may or may not be eligible for E-rate support depending on state law. • All entities receiving services should be listed in the Form 471 Block 3 worksheet(s). After receiving the Receipt Acknowledgment Letter (RAL), verify that all the Block 3 data are correct by reviewing the display copy of Form 471 on the SLD web site. Report any errors within the three-week RAL correction period.

28. Round 3 Exceptions –Discount Percent • Insufficient documentation • Unapproved discount method used

29. How to Avoid Audit Issues - Discount Percent • Retain documentation that supports the discount percent requested on Form 471. This documentation includes, but is not limited to, the free and reduced lunch report or other documentation. If an alternative discount method was used, retain documentation that agrees with the student eligibility information on the Form 471 Block 3 worksheets.

30. QUESTIONS